Strong Econ Data to Sway March Fed Decision?

New economic data relevant to a possible Fed interest rate decision next month has hit the tape prior to today’s opening bell. Retail Sales, the Consumer Price Index (CPI) and the Empire State Manufacturing Survey have reported figures higher than expected by analysts, pointing toward inflation building within the U.S. economy.

Retail Sales beat expectations, coming in at +0.4% on the headline number. Key within this report is when one strips out auto sales, that number jumps to +0.8%. Year over year, Retail Sales are up 2.3%; you’d have to go back to 2008 to see a higher read than that. Even though retailers overall struggled during the 2016 holiday season, at least some of this rests on headwinds from competition from Amazon AMZN. What we instead see through reports like this is actual inflation creeping into the retail space.

Speaking of Retail, President Trump meets with top executives from retail majors such as Target TGT, Gap GPS, Best Buy BBY and J.C. Penney JCP. Based on how much of these companies’ inventory is manufactured outside the U.S., it appears quite likely issues like Trump’s border tax proposal will be discussed thoroughly today.

Today’s CPI number of +0.6% also looks hot — and it’s the same as the Producer Price Index (PPI) read from yesterday. Ex-food & energy, this read falls to 0.3%, implying much of the heat is coming from those two components. Sifting through the details bears this out: on a month-over-month basis, gasoline prices have shot up 7.8%. Commodities were up another 1% and Airlines +2%, although airfares are down 3.3% year over year.

The main inflation read in this report is a year-over-year figure of 2.5%. Align this with the testimony we heard from Fed Chair Janet Yellen yesterday (which she will continue today), and what we see is the Fed closely watching economic stability under the fledgling Trump administration as well as inflationary levels such as in reports like these. Meaning a March rate hike looks firmly on the table at this point.

The market has not yet priced in the possibility of a new quarter-point hike (to 75-100 basis points), but market futures are down slightly ahead of the bell. Then again, we are seeing historic highs being reached in the main indexes of late — thanks to a Republican-led tax cut scenario in both the Legislative (Congress) and Executive (White House) branches of government — so perhaps this is just the market taking a breather.

Finally, the Empire State read blossomed to 18.7% for the month of February, up from 16.5% in January. This is the highest figure in over two years, and more than double the expectations from analysts of 7.5% growth in the manufacturing economy of New York State. New orders and shipments both spiked up in this latest read; this is a rather volatile survey month over month, but it also represents strong economic growth for the second straight report.